I just want a return above inflation, best option?

Legacy_user

I am looking for a return above CPI inflation (easy at the moment because CPI is 0%), but it will go up. I don't pay any tax and have around £500k

Are index linked gilts the best option?


Looking for high safety, low risk, so low return obviously

kidmugsy

berbastrike wrote: »

I am looking for a return above CPI inflation
Are index linked gilts the best option?

They scarcely pay above CPI: click on "table" at the link, and bear in mind that you can assume that RPI inflation = CPI inflation + 0.8% p.a.

http://markets.ft.com/research/Markets/Bonds

jimjames

Do you need it all in the same thing?


Might make sense to invest some and keep some in bank accounts. Obviously depends if it's earmarked for house purchase or just for living expenses/income.


If income is main priority then value on a specific day is pretty irrelevant and investment of a portion seems like an idea. Some investments have paid an increasing income for over 40 years despite the stock market ups and downs over that time.

System

Thanks Jim

I have a question, gilts..
http://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/uk-gilts


The 4rth one down, says 4% and matures in 14 months. Lets pretend it says 12 months.

The best 1 year saving accounts will probably only give 2% right now.


Is this 4% to good be true? Where is the catch?

nadias

4% would have been the rate if purchased at initial price 100. Price is now 103 something, hence that 4% has eroded to the yield. You need to look at yield.

System

So the price is now 103.855. Which means I put in £100k, I would only get around 1.04-1.03855 back?

Also the index linked gilts are all showing neg yields-
http://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/uk-index-linked-gilts



Does this means I would lose money if I put money in them?

kidmugsy

berbastrike wrote: »

So the price is now 103.855. Which means I put in £100k, I would only get around 1.04-1.03855 back?

No; it means that for every £104,000 you invest you'll get back only £100,000 capital.

berbastrike wrote: »

Also the index linked gilts are all showing neg yields-
http://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/uk-index-linked-gilts

Does this means I would lose money if I put money in them?

It means that you'd lose compared to RPI inflation i.e. your money would lose value. As you'll see, it means that your money would just about hold its value vs CPI inflation. And those are both true only if you hold the gilt to maturity. If you sell it before then you don't know what you'll get - it depends on market prices.

System

Ok, so how do I get an inflation linked gilk that guarantees to beat RPI?

masonic

berbastrike wrote: »

Ok, so how do I get an inflation linked gilk that guarantees to beat RPI?

The short answer is that right now you can't.

System

Do I need to wait until new inflation link gilts are "released"?

masonic

berbastrike wrote: »

Do I need to wait until new inflation link gilts are "released"?

New issues are sold at auction. The last one was the 0 1/8% Index-linked Treasury Gilt 2026, which sold at an 8.1% premium, giving a real yield of -0.609%.